Payday loans can lead to financial problems
January 14, 2010 by admin
Finding yourself in a financial bind is never a comfortable position. As the lending landscape has changed, consumers find themselves with fewer and fewer options to obtain financial assistance. One of the more common avenues that borrowers are now turning there focus on is a short term cash advance or payday loan. The short term payday loan industry is challenge to navigate for almost every consumer. Finding a payday loan is not difficult, but finding the best option for short term financing becomes more complex.
Emergency short term loans carry the burden of trying to make good financial decisions under the pressure of needing cash in a hurry. In years past, consumers often were able to obtain personal or signature loans from their banks or credit card companies. These loans often were based on the borrowers relationship with their bank and carried low rates and fees. Over the years, personal loans were replaced with higher rate credit card cash advance loans, offering borrowers convenient financing alternatives to borrow money with no additional underwriting or borrowing requirements. Credit card cash advances were convenient and simple, often borrowers were enticed with checks arriving from their card companies on a regular basis that simply required a signature on a piece of paper. The simplicity and ease of borrowing money was a key ingredient in fueling the economy during the peak of the housing boom and led to a large increase in the demand of credit card consolidation loans through refinancing of mortgages and newly created home equity loans.
As the credit markets collapsed over the last two years, banks and credit card companies significantly reduced the availability of financing to the public. One of the quickest ways they pulled back on consumers was the elimination of available credit card cash advances. Eliminating the short term financing has put the payday lending industry in the drivers seat for offering short term and emergency loan options to fill this void. The challenge with the surge in demand for short term payday lending is that there is a wide degree with the integrity of lenders and many states have been slow to adopt guidelines to protect consumers with this type of financing. It is not uncommon for payday lenders to charge consumers APR’s in excess of six hundred percent annually for a short term payday loan. The excess of rates and fees can lead to financial hardship for consumers who become trapped in the cycle of payday loans. Often when consumers fall into the trap, they are constantly pledging a future paycheck for the cash in hand today. Short term loans should be used for emergencies and not as a means to maintain lifestyles. Falling into this financial cycle can lead to hardship and ruin if a borrower is not able to pull out of this trap.